AcelRx Pharmaceuticals' (ACRX) CEO Vince Angotti on Q4 2018 Results - Earnings Call Transcript

About: AcelRx Pharmaceuticals, Inc. (ACRX)
by: SA Transcripts
Subscribers Only
Earning Call Audio

Call Start: 16:30 January 1, 0000 5:19 PM ET

AcelRx Pharmaceuticals, Inc. (NASDAQ:ACRX)

Q4 2018 Earnings Conference Call

March 7, 2019, 4:30 pm ET

Company Participants

Raffi Asadorian - CFO

Vince Angotti - CEO

Pam Palmer - CMO

Conference Call Participants

Ashley Ryu - RBC

Brandon Folkes - Cantor Fitzgerald

Vamil Divan - Credit Suisse

Ed Arce - H.C. Wainwright & Company

Roger Song - Jefferies

Michael Higgins - Ladenburg Thalmann

David Buck - B.Riley FBR

Leland Gershell - Oppenheimer


Welcome to the AcelRx Fourth Quarter and Full-Year 2018 Conference Call. This call is being webcast live on the Events page of the Investors section of AcelRx's website at This call is the property of AcelRx and any recording, reproduction, or transmission of this call without the express written consent of AcelRx is strictly prohibited. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the Investors section of AcelRx's website.

I would now like to turn the conference call over to Raffi Asadorian, AcelRx's Chief Financial Officer.

Raffi Asadorian

Thank you for joining us this afternoon.

Earlier today, we reported our fourth quarter and full-year 2018 financial results and provided an update of the commercial launch of DSUVIA in the press releases. This press releases and a slide presentation accompanying this call are available in the Investors section of our website.

With me today are Vince Angotti, our Chief Executive Officer and Dr. Pam Palmer, our Chief Medical Officer.

Before we begin, I'll remind our listeners that during this call, we will make forward-looking statements within the meaning of the Federal Securities laws. These forward-looking statements involve risks and uncertainties, regarding the operations and future results of AcelRx.

In addition to the Company's periodic, current and annual reports filed with the Securities and Exchange Commission, please refer to the text of our press release, for a discussion of the risks associated with such forward-looking statements.

I'll now turn the call over to Vince Angotti.

Vince Angotti

Thank you, Raffi. And thank you to everyone for joining us today.

2018 was a landmark year for AcelRx in which we successfully achieved all of our stated milestones. After 13 years of diligence and dedication to a mission focused on addressing opioid dosing errors in hospitals through the development of an innovative non-invasive treatment for acute pain, AcelRx successfully received its first U.S. product approval for DSUVIA in November.

With the approval, AcelRx now has 14 orange book listed patents with exclusivity dates ranging from 2027 through 2031.

While the approval of DSUVIA occurred just last quarter, our focus has quickly pivoted to commercialization, so DSUVIA's benefits to begin to be realized by healthcare systems, practitioners, and patients alike.

The disciplined commercial launch for DSUVIA has been well planned with a very experienced team with whom I worked with previously at two successful commercial companies. Through their efforts DSUVIA was available for shipment to wholesalers in the second half of February so just a couple of weeks ago.

Today, I'll provide an update and status of our early commercial launch efforts including an update on supply chain activities, and then, Raffi, will provide an overview of our fourth quarter and 2018 financials and some updated expectations for 2019.

At our Analyst Day in December, we hosted a robust discussion with several key opinion leaders involved in the treatment of acute pain where they discussed the current unmet need in hospitals and expressed enthusiasm for the ability to treat their patients with DSUVIA. On this day, we also laid out our launch plans and I'm pleased to say that we're either on or ahead of schedule.

First, let me provide some color and share our excitement on how the first few weeks of our DSUVIA launch have progressed. In late January, we completed the first wave of hiring, training, and deployment of 15 hospital Account Managers to educate healthcare practitioners. Our highly experienced hospital team has on average 20 years of pharmaceutical sales experience, and more importantly, 14 years of successful hospital pharmaceutical sales experience in their AcelRx territories.

Hospital sales is a process and the first gate of a successful hospital launch is to be approved on a hospital formulary which allows healthcare professionals to use the product within their respective hospital, emergency room, or surgery center. To gain hospital formulary status generally, a P&T Committee or Pharmacy & Therapeutics Committee reviews and studies the products benefits both clinical and economic to determine if and how the hospital will allow use of the product.

The process and timing for formulary adoption is different from hospital to hospital and can take as little as three months or up to as long as one year in extreme cases. In our planning, we assume an average of six months to get on formulary across our launch targets. We expect to give quarterly updates on our hospital formulary wins during our launch period which will provide an initial indication of launch progress.

During our Investor and Analyst Day in December 2018, we provided an expectation of 100 hospital formulary wins by the end of 2019. After just a few weeks in the field, based on the level of interest we're seeing in DSUVIA, we're increasing this expectation to 125 hospital formulary wins by the end of the year.

Hospitals interested in adopting DSUVIA on formulary are diverse including university or teaching hospitals, community hospitals, and independent ambulatory surgical centers.

As a result of the early level of interest in DSUVIA, and with the backdrop of the continuing IV opioid shortage and its impact on healthcare systems, we plan to accelerate the hiring of the next wave of 25 hospital account managers to Q3 2019 from the originally planned Q4 2019.

In addition to the positive early indicators from our hospital account sales team's efforts, our market access team has made significant progress with wholesaler distribution, hospital GPO contracts, and the Department of Defense. To-date, we've executed contracts with GPOs covering about 80% of our initial launch target hospitals.

Our plans to close on the remaining key GPO contracts, increasing our coverage to more than 90% of the DSUVIA launch targets during the course of this year.

We've also completed contracting with key wholesalers that'll be the main direct purchasers of DSUVIA for distribution to hospitals. Our first shipments of DSUVIA to wholesale customers were completed as planned in the second half of February. The wholesale acquisition cost or list price for each DSUVIA single dose applicator or SDA was $58.31. DSUVIA sold in a carton containing 10 FDAs. We expect the gross to net sales percentage as previously communicated is 35% which accounts for the various discounts, rebates, and fees expected to be paid along the supply chain.

We continue to be appreciative of the support offered by the U.S. Department of Defense, would provided over $20 million of funding for the development of DSUVIA. As we previously communicated military personnel, military treatment facilities, the Veterans Administration hospitals, and other qualifying Federal Healthcare Agencies were all potential customers.

Our primary focus in year one would be to support military personnel within the branches of the military and patients receiving care at military treatment facilities. The VA and other federal agencies are expected to be a focus in year two.

In addition to our commercial launch, we're making some important changes to our operations and supply chain laying the foundation for long-term success. All our production and assembly for DSUVIA as well as for Zalviso for our European partner Grunenthal is outsourced to contract manufacturers.

The packaging of DSUVIA, the most costly component of production is currently semi-automated a process which we expect to continue used for another 12 to 15 months. And while this provides sufficient capacity to meet our short-term needs, we expect the transfer packaging of DSUVIA to a new fully automated line later this year with qualified commercial product available mid-2020.

We're in the final stages of selecting a contract manufacturer to house and operate the new automated line which is an annual single ship capacity of 10 million units allowing flexibility to increase production as required.

The unit cost of producing DSUVIA is expected to decline for more than 60% upon the implementation of this fully automated packaging line. This reduction in cost also has a significant beneficial impact on our ex-U.S. strategy with potential partners due to the lower expected pricing of DSUVIA outside the U.S.

With regards to the ex-U.S. licensing opportunities, we remain in discussions with the potential partners in both Europe and other ex-U.S. territories and the planned manufacturing cost reductions are expected to benefit any transaction.

We're also in the process of changing contract manufacturers for Zalviso. Currently we're only producing and supplying Zalviso to our European partner, Grunenthal. The reason for the transfer to a new contract manufacturer is to consolidate the production of the different components of Zalviso to realize significant cost savings. The realization of the full-cost savings from this transfer will likely not begin until the end of 2020.

And with regards to Zalviso NDA, we're confident we have sufficient data to respond to the CRL including safety data from Zalviso used in Europe. However given the current environment we believe having DSUVIA REMS reports and additional Zalviso European clinical data will be beneficial demonstrating AcelRx's compliance with and effectiveness of the DSUVIA REMS program prior to an expected Zalviso FDA Advisory Committee meeting will provide additional support for Zalviso safe use.

Our first year of DSUVIA REMS reporting will be submitted by November.

In addition, later this year, we're expecting results from a multi-national prospective study on Zalviso use throughout Europe from our partner Grunenthal. Specifically, this study is evaluating the efficacy, safety, usability, and health economics of Zalviso for the management of acute, moderate, severe post-operative pain. As a reminder, Zalviso has been approved and used in post-operative patients across Europe since 2016 with no concerning safety signals. And we realize the additional data may be more than what was requested in the Zalviso CRL and further delays or NDA resubmission. However in the present climate, we believe this is prudent. In addition this allows us to fully focus on our most important value driver, a successful DSUVIA launch.

Finally, DSUVIA has been mentioned in the media quite a bit since the positive advisory committee board recommending approval. More often than not, these media communications perpetuate incorrect and misleading statements about DSUVIA and its potential for misuse. Again to clarify the facts, DSUVIA is only indicated for acute pain and is approved for use only in medically supervised settings and administered only by a healthcare professional in these settings.

Secondly, DSUVIA is not 1,000 times more potent in morphine or powerful than morphine is dose adjusted to be equivalent to approximately five milligrams of IV morphine which is common dose administered for acute pain in the hospital.

And finally, while any diversion or misuse is unacceptable, to put it in perspective according to the most recently published government data, opioids stolen from a healthcare setting comprise only 0.5% of misused opioids in this country.

Before turning the call over to Raffi, it's important to reiterate that we take a responsibility under the DSUVIA awareness program very seriously. We'll be auditing the certified healthcare settings and wholesalers that purchase DSUVIA for compliance with our REMS. We believe that demonstrating our responsible adherence to the REMS can be a positive example of proper industry practices moving forward.

Raffi will now take you through the financials.

Raffi Asadorian

Thank you, Vince.

We ended 2018 with $105.7 million in cash and short-term investments. During the fourth quarter, we raised a total of $53.4 million through the issuance of equity to fund our commercial launch of DSUVIA.

Excluding the issuance of equity, our net cash outflow for the fourth quarter was $11.3 million which was below the cash burn guidance previously provided. The main driver of this net cash outflow was our operating expenses or combined R&D and G&A expenses, which during the quarter was $10.4 million or $9.2 million excluding stock-based compensation. The increase over the third quarter 2018 was attributed to the preparation for the commercial launch in the second half of February of this year.

Debt service during the quarter was $2.3 million which is attributed to our senior secured debt as currently amortizing. The amount of senior debt due at the end of 2018 was $12 million.

Collaboration agreement revenue under the agreement with our European Partner Grunenthal was $1.3 million in 2018 and is not expected to significantly change in 2019. As a reminder, these collaboration revenues do not have a significant impact on our cash flows in the near-term since a majority of Europeans Zalviso royalties and milestones were already monetized with PDL in 2015.

Now that we've initiated our DSUVIA launch, I will now provide some guidance for 2019.

As Vince already mentioned, given the interest we're seeing in DSUVIA we've increased our expected formulary wins from 100 hospitals to 125 hospitals by the end of the year. We plan to provide updates on formulary wins on each quarterly call as an initial indication of how the launch is progressing and how DSUVIA is being accepted in medically supervised settings.

This is only the first gate and orders and reorders will become more important metrics as the launch matures. The WACC or list price of DSUVIA is $58.31 and our estimated gross to net sales percentage remains unchanged at 35%. We've seen solid interest from institutions in DSUVIA and we plan to accelerate our hiring to better manage this level of interest. However we continue to take a measured approach as it's very early in the launch, and as mentioned, formulary acceptance and changing the habits of healthcare practitioners takes time. With the commercialization, we expect an increase in our operating expenses or combined SG&A and R&D expenses in 2019. Excluding stock-based compensation, we expect our quarterly cash operating expenses to be in the $13 million to $16 million range depending upon the quarter.

Annual debt service will approximate $9 million. Our senior debt is currently amortizing until maturity in March 2020.

And finally, our capital expenditures for the year are expected to be in the range of $5 million to $7 million which is principally attributed to the new high volume packaging line that will be installed at our contract manufacturer later this year.

With that, let me turn the call back over to Vince.

Vince Angotti

Thanks, Raffi.

So to summarize, last year was transformational for AcelRx, as we have now become a commercial focused company with the recent launch of DSUVIA. It cannot be more enthusiastic about the outlook for AcelRx as DSUVIA represents a truly innovative, efficient, and effective non-invasive treatment for acute pain.

We'll be presenting at several upcoming conferences including Oppenheimer later this month in New York and I look forward to continuing to keep investors updated on our progress.

I'd now like to open the line up for any questions you might have. Operator?

Question-and-Answer Session


Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions].

Our first question today comes from Randall Stanicky from RBC. Please go ahead with your question.

Ashley Ryu

Hi, this is Ashley Ryu on for Randall. Congrats on the launch so far. It sounds like you've come out of the gate strong given the initial color around 2019. Can you elaborate a little bit further on the initial indications of interest you've seen in hospitals i.e. what kind of feedback are you getting from docs and do you think that this greater than expected initial interest is being driven by the ongoing IV opioid shortage and are you expecting kind of any acceleration in getting in front of P&T committees from this shortage? Thanks.

Vince Angotti

Yes, thanks, Ashley for the question. So I'll handle that. So I think there's a couple of components to that. One is who's been the main champion thus far with the institutions where there is interest, it depends on the institution but it's included Directors of Pharmacy, sometimes pharm Ds who actually dedicate -- dedicated to a certain departments for instance emergency rooms. We've had the Heads of Anesthesiology departments, ER physicians, and sometimes all the above in any particular institution.

The top reasons really for the early indicators of DSUVIA interest universally there's the obvious one that everyone has a population of patients in particular in the ER who are difficult to stick. So I would say that's the common denominator among them all. ER physicians often see it as a replacement for patients who only need the IV for the administration of an opioid for acute pain and no other reason. So again fundamentally a very obvious population for DSUVIA.

Beyond that the anesthesiologists at least as it relates the feedback to us see a need for post-op patients in the PACU, with IVs has been removed but still need pain control prior to discharge. So there's the efficiency as it relates to that discharge and the economics to the hospital and comfort for that patient.

And then there's other things that we've seen throughout that have actually been brought up to us. While they see it as an option for patients being in acute pain during physical therapy as they need to ambulate and try to recuperate from joint surgeries. It's important to get the mobile for better discharge success rates but there's pain associated with that and they can't certainly can't do their exercises with an IV line in, it's also been communicated to us that there might be an interest for burn patients who have come up often as they need to address acute pain during potential dressing changes. So these are some of the indications of the interest in why thus far. Does that help answer your question?

Ashley Ryu

Yes. And just one follow-up. Can you talk a little bit about the strategy to target the military treatment facilities and I know you've talked before about the concentration of patient volumes there. How quickly can you ramp these facilities. And I think before you had also mentioned that you could see orders kind of in the second half of the first quarter. So have you seen those orders already and how lumpy will that segment kind of be?

Vince Angotti

Yes. So just one thing I did mention on your previous question was IV opioids and is the shortage driving reviews. And then I'll talk about the DoD here for a moment. There continues to be feedback off across the country that the IV opioid shortage is a challenge just about every hospital we've gone into is aware of it. I think it helps accelerate interest in the review process for the P&T committees. It's not the sole reason but it certainly is top of mind where they need alternatives to the current standards of care. So I do think it's an enhancement.

For the Department of Defense we're thrilled that our military now be able to use DSUVIA. We know it's a priority project for the Department of Defense. Our federal accounts team with whom I've worked with them at AdCom is established and active in understanding with DoD and other U.S. government needs. Different groups within each of the branches of the military are currently reviewing their specific needs. Now what do I mean by different branches, it might be special ops, it might be the military treatment facilities, it might be tactical casualty care combat et cetera. But we can't provide order expectations or the details of that. Each has their own protocol review in order and they're in the process of reviewing those protocols, includes the REMS, and how the order amounts et cetera. And we certainly respect their confidentialities with their protocol and review processes. I can tell you we're engaged with them and they certainly have an interest moving forward.

Ashley Ryu

Got it. Thank you.

Vince Angotti

You're welcome. Thank you for the question.


Our next question comes from Brandon Folkes from Cantor Fitzgerald. Please go ahead with your question.

Brandon Folkes

Hi, thanks for taking my question and congratulations on the launch as well. So in terms of the formulary wins goal, can you help us think through the progression that we may see throughout the year given that you're increasing the goal certainly in the launch. Is it safe to assume you have some good visibility where we could actually see a fixed number of formulary wins in the first half of the year? And then maybe just following on from that or perhaps a leading indicator I don't know you mentioned on the call. But can you give us an update on how many accounts or even if it's just qualitatively or have signed up for the REMS program? Thank you.

Vince Angotti

Yes. From the REMS, I can't give you specific number but there have been some institutions that have already signed up even prior to their final P&T decisions. So hopefully that's a positive lead indicator.

As it relates to the formularies, yes, look I was a hospital rep, I was military rep throughout my career and I know it's a process and it takes time. We're just thrilled with the fact that champions have stepped up to the plate within these hospitals because they certainly see the need for their institution and patient care with this alternative to the IV opioids. And by championing that they need to take it to the P&T and get dates confirmed and we started to see a pretty steady set of dates throughout the second quarter or even parts of the first quarter into the second quarter moving forward.

So a little earlier for some of these institutions that we -- than we expected. I think what's exciting to us is the mix of institutions, you've got teaching institutions or hospitals that clearly have very specific review processes with multiple P&T committee members and expertise within those hospitals and they're part of those early formulary reviews throughout now in the second quarter.

Brandon Folkes

Great, thank you very much.

Vince Angotti

That helps, Brandon. Thank you.


Our next question comes from Vamil Divan from Credit Suisse. Please go ahead with your question.

Vamil Divan

Great, thanks for taking my questions. So just a couple, you mentioned in your remarks. Certainly there is obviously a lot of attention in the media on DSUVIA's approval. I know there was some requests from some lawmakers from the FDA but more documentation around the decision. Can you just sort of share what you're hearing from your side in terms of sort of pushback from the government or other officials around this approval and maybe insight into the P&T committee. Have you seen any sort of resistance given as an opioid, new opioid has been approved or they really just looking at the facts more clearly around the differentiation that this product might provide. So just a little bit of perspective on what you're seeing and hearing around those controversies would be helpful.

Vince Angotti

Yes, that's a great question, Vamil. So we’re certainly aware of the news media around opioids in general and around DSUVIA and how it may sometimes be misrepresented. And we are certainly concerned as the public in United States about the issue with opioid addiction and particularly those available in the retail outlets for chronic use and we support the FDA stance on trying to curb that moving forward however that might be in the coming months and years.

With that said, at the local level, when we're speaking to the institutions and healthcare practitioners they're solely focused on the science and the need for it within their relative institutions, how it might be able to benefit patient care and efficiencies in their hospitals. Not for everyone but they certainly see it in particular circumstances where it can have an impact. So it's been nice to see for us that the focus has been on the science and the patient with these institutions that are proper candidates for a product like DSUVIA.

Vamil Divan

Okay, thanks. And then maybe just one other separate question, you mentioned you've been shipping to wholesalers. Can you just elaborate on sort of shipment patterns and so when you'll be recognizing revenues, just to clarify that how to model?

Raffi Asadorian

Yes, we're not going to comment on kind of intra quarter stuff but we will recognize revenue upon shipments to the wholesalers. But in terms of levels and amounts of orders, we'll be doing that on our each of the quarterly calls beginning with the first quarter call.


Your next question comes from Ed Arce from H.C. Wainwright & Company. Please go ahead with your question.

Ed Arce

Hi Vince, thanks for taking my question and congrats on the early launch seems like things are going well so far. A couple of questions from me. As you just alluded to earlier, you're right out of the gate raising your formulary wins for the full-year and I'm wondering as you've gotten feedback from various P&T committee meetings across the different types of facilities, what kind of feedback are you getting from those consistently that that they're saying is some of the key benefits in their view and perhaps any potential challenges that they may also have mentioned. And then separately from that very early days I'm sure in terms of the actual use of the product but are you hearing any feedback yet from administering physicians or nurses and how they may like the use of the product? Thanks a lot.

Vince Angotti

Yes, thanks for the second half of the question, Ed, and thank you for it. It's a little too early to get that feedback. They're still going mainly through the review process and the formulary discussions. But as you mentioned with P&T feedback, I'll communicate areas where again they feel that it can benefit their particular institutions.

Again the most obvious population which they all communicate to us, they have a segment up or it's difficult to stick patients to particularly in the ER as well as those ER patients that have a need for IV opioid administration and no other reason for the IV line. Those again are the most fundamental, common communications to us from that segment.

I think what's been more surprising to us, I don't know if surprising is the best word is the PACU and post-Op where the anesthesiologists are telling us they'd like to get the line out in the recovery room after surgery and oftentimes the pain again occurs and they can't discharge without having the proper level of pain control and comfort for that patient.

And the last thing they tell us they like to do is to reinsert a line and they feel that DSUVIA is the proper fit for those particular patients to help alleviate that pain, get them stabilized and move them out without having to reinsert that line for those patients. The patients don't like a line reinsertion either. So that's come up more often than I think we anticipated, unsolicited from the accounts back to us. I hope that gives you a little bit of color.

Ed Arce

Yes, that's fine. Thank you, Vince.

Vince Angotti

Thanks Ed.


Our next question comes from Roger Song from Jefferies. Please go ahead with your question.

Roger Song

Hey Vince, Raffi, thank you for taking my questions and a congrats on the early launch of DSUVIA. So maybe just two questions from me. So one is you mentioned hospital formulary will be the key metrics you'll track quarterly, Raffi mentioned a little bit about order, reorder and just can you remind us what will be the key launch metrics you will track and what we can expect its monthly or quarterly basis?

Vince Angotti

Yes, I think on a quarterly basis, the primary initially is the positive formulary acceptances because unless you have those, they likely will not be able to order the product or use it within the facility for each of their respective members. As time goes on -- and that'll be updated on a quarterly basis. As time goes on I think what's important is formularies are one aspect but the second aspect is what they've actually begun utilization and the adoption of the product for specific patient populations within that institution.

So the initial order and as we get later in the year time to reorder, I think will make a difference to understand if there's repetitive use and if it's found its niche on a routine manner. And you think you'll see those orders and reorders more towards the second half of the year than the first half of the year and again on a quarterly basis.

Roger Song

Got it, thank you. So next question is, seems to you of course you are focusing on the launching in the U.S. for DSUVIA. I was just curious have you kind of start a conversation discussion about ex-U.S. partnership that process kind of accelerated a little bit as you launch DSUVIA in the U.S.?

Vince Angotti

Yes, as we stated, Roger, we're still in discussions with some partners -- with some potential partners for the -- for our European licensing opportunities. The U.S. launch really does not have an impact on Europe or any of the ex-U.S. territories. So we remain in discussions.

The biggest opportunity and I think we've said this before, the biggest opportunity for us is bringing the cost down of production for DSUVIA because in Europe the pricing is so much lower and it has a much, much more important impact on the business in Europe. And now as we're getting close to agreeing with a contract manufacturer, once we have that finalized and at a cost of production that is much more conducive for that European environment we believe that's going to have a beneficial impact on getting a deal done there.


Our next question comes from Michael Higgins from Ladenburg Thalmann. Please go ahead with your question.

Michael Higgins

Thanks and congratulations guys on the early launch and successes so far. A couple of questions if I could, we see this primarily as the emergency department drug but it sounds like you're having some success upstairs we're picking roughly 80% of revenues coming from emergency departments but I'm not so certain of that anymore and hearing your comments on the PACU and different opportunities upstairs? I don't hold you to a specific percent but if you can give us some color as to where you think the use will come in 2019 and then 2020 and the future years, is it still to be considered primarily emergency department products or more widespread throughout the hospital?

Vince Angotti

So thanks Michael for the question. Yes, I think we always had an anticipation that upstairs, I think as you term it would have potential for the product in certain circumstances. I think what's been interesting to us is the feedback unsolicited from the anesthesiologist where they see it especially fitting with a ERAS protocol moving forward for early or for proper discharge timing of these patients.

So nothing's really changed versus our expectation other than the feedback until you're out there and you actually get it face-to-face with customers that haven't been involved all along. It's nice to hear where they see the position for it moving forward.

From a percentage, it’d be tough to give you like I want to emphasize it's early but the early indicators certainly have been a positive acceptance moving forward. And those two areas have always been a focus for us, ER and post-Op.

I think what is most interesting to us even beyond that is some of the more vocal people in the hospitals that we've called on to-date are the anesthesiologists and while they have some impact in the ER, they certainly have an impact in the post-Op world. I know Pam if you have any additional color to add. I might add that Pam has actually been in the field from speaking with potential customers, I have as well. So it comes from the sales team but it also comes from firsthand discussions with customers.

Pam Palmer

Yes, I mean that's absolutely emergency room and PACU is our focus and it's sort of where the obvious fit. But we've always said from the very beginning when we developed this drug that once we can get into the hospitals, we will act they will figure out where it best works for them, so whether it's a burn unit, surprisingly we've had a lot of interest in intensive care units from intensivists which are usually anesthesiologists. Because even though they already have lines in, those are dedicated lines, their minds free to blood products or what have you. So they actually try to do as much as they can non-invasively.

And as Vince mentioned, ERAS, which stands for Enhanced Recovery After Surgery is a huge movement that's really gaining traction here in the U.S. as well as Europe. And that's really trying to minimize routes of administration are invasive, to trying to get out the IV's, get out the needs of gastric tube, get out the urinary catheters to avoid tethering these people down and creating more infection risk. So DSUVIA fits right along with that and while we do believe ER and PACU are main markets, there will be interesting infiltration I think into these other areas.

Michael Higgins

Great, it’s helpful. Thanks. And Vince thanks for the update on the timing of the reps. Looks like you're moving that forward a bit. Are you still looking for 60 reps by middle of 2020? Any insights you can provide peak number in 2020 would be helpful. Thanks.

Vince Angotti

Yes, we're going to remain focused or Michael we're going to remain focused on our disciplined approach moving forward. So while we're bringing the second wave of sales representatives up a bit earlier just one quarter into the third quarter, we haven't made any changes to the peak number of reps at 60 in the following year. We want to stay measured in our approach. We don't want to get ahead of ourselves. It's still early in the launch. And those are the goals that we're going to continue to focus on. Thanks for your question. Thanks Mike.

Michael Higgins

Thanks, Vince. Sure. Thank you.


Our next question comes from David Buck from B.Riley FBR. Please go ahead with your question.

David Buck

Yes, thanks and good afternoon. So my questions have been answered but a couple of quick ones. First I guess for Vince, can you talk about whether or not I know you got wholesaler shipment and you just had the official launch a couple of weeks ago. Have you actually had any formulary wins so far in the hospitals? I know you're in the GPOs and you shipped to wholesalers but have you had any actual wins at hospital level. And another question more on the process of getting to 125 is your goal. What have you seen so far as the biggest pushback is it the cost versus generically available albeit in shortage IV opioids or what's the biggest push that you're hearing in initial conversations? Thanks.

Vince Angotti

Hi, David. Thanks for the question. We're not going to provide inter-quartile updates as it relates to formulary or orders moving forward, we'll get those on each quarterly call.

But as it relates to the biggest pushback, cost hasn't been I think what's also been very revealing is we have an account management team that goes and to talks about the contract even if they want to do something supplemental to GPO. These hospitals know their costs at least communicated to us. So what we've communicated in previous published studies, the cost of an initial IV insertion for an IV opioid administration. They know their costs and they know them down to the detail. And we were very careful in the pricing of DSUVIA through some significant research and work with our customers so that at the current WACC price, even if a second dose had to be administered, it wouldn't be a significant obstacle for these hospitals to adopt it.

The biggest challenge for us is just timing. So I wouldn't call the pricing pushback but the biggest thing is timing and being sure that you get on the calendars. I'll give you an example. You're often at the mercy of the physician's time in need for that day, a P&T Committee maybe meeting that day but if we have a surgeon and we've had this happen. Who's your champion presenting to the P&T and they get called into an emergency surgery, you may have lost that day. So it's really about the calendarizing and the organization of it. We take a very methodical sequence of approach. Well our hospital account managers are typically the first line of entry and introduction. They're often followed with a medical science liaison to get deeper into the clinical who's often followed by an Accounts Manager talking about the various economic impacts with the hospital based off of that hospital's unique expenses associated with the procedure that might be relative to DSUVIA.

And once all that's done, then they package it in the Director's pharmacy, the physician champion, and the P&T Committee will review. So it just remains a process. There hasn't been one common variable that I could tell you is the one we hear most often as it relates to in our position. It is early days, but that's the feedback.

David Buck

Yes. And have you had any actual feedback on pricing that's basic sensible in terms of what's been the feedback on pricing with the WACC price?

Vince Angotti

Yes, exactly, we said it's acceptable and realizing that they're going to get, that's not the price they pay. That's what was important to get the GPOs completed early, so they'll have access to the product at a discounted rate based off of the GPO they're associated with. And some of them in those discussions maybe one will call bilateral agreements where the discounting may be more significant than what they even get off the GPO but those are typically the larger volume hospitals, teaching institutions, significant residents programs et cetera who typically get those kinds of discounts from most companies. All that by the way, it's been considered within our gross to net. I hope that helps, David.

David Buck

It did, thank you. Yes.

Vince Angotti

You're welcome.


Our next question comes from Leland Gershell from Oppenheimer. Please go ahead with your question.

Leland Gershell

Hi Vince and team, thanks for taking my question. Most of my questions have been answered already. And thank you for the update on the formulary guidance. Wanted to ask I know it's early days but if you're getting any reads on repeat use of DSUVIA versus what may be single use depending on the patient in variety of settings you might see patients just getting one DSUVIA or perhaps another as you might see patients getting one in an hour or two later another one. Is there any commentary you can provide on how you're seeing kind of multiplicity of dosing play out in the field as you've been getting into marketing? Thanks.

Vince Angotti

Yes, hi Leland. It's much too early for that feedback. I'll remind you that the sales teams only been out there for a month, the products only been available for order for a couple of weeks. So it's much too early for that. It's more about the reviews right now, how they plan on using it and whether it will be a repeat dose or not that will happen over time as they actually have real utilization.

Raffi Asadorian

And I do think that that Leland that that information is going to be more anecdotal because that's going to be difficult data to get on how many doses per patient. But we'll certainly be interested in getting that anecdotal information from our team that's out in the field.

Leland Gershell

All right. Thanks. And also the PACU interest was also interesting to hear about. I wanted to ask about if you could remind us the monitoring requirement after dosing for DSUVIA, how long patients have to be monitored.

Vince Angotti

Great, great question. Pam will handle that.

Pam Palmer

Yes, each hospital has their own standard protocols for monitoring. I mean the one thing I'm excited about with DSUVIA is just the rapid absorption. I mean we know within 30 minutes that the plasma levels are already 75% of the maximal levels that they're going to achieve. And we also know because of these very rapid blood to brain collaboration that that effect has also been real time transmitted to the brain. So you're not going to see this delayed adverse event, you're not going to see that because of the quick uptake and quick onset but also the lack of active metabolites.

So for lots of reasons each hospital have to evaluate and come up with their own sort of standard operating procedures for time to discharge around DSUVIA. But there's reasons to believe it could be in fact shorter than further opioids.


Next question is a follow-up from Ed Arce from H.C. Wainwright. Please go ahead with your follow-up.

Ed Arce

Great, thanks for taking the questions. So I just wanted to follow-up on a point you had made earlier, Vince, where given the present climate in the U.S. around the opioid abuse crisis and you made a point about how demonstrating AcelRx's compliance with the REMS and that includes not only training but auditing these facilities as well as each of the healthcare professionals and then a first report in November of this year. And I'm wondering if how you see the benefit of any information or data that could come to light from that report or other things that could be helpful or beneficial to you for either DSUVIA or even Zalviso? Thank you.

Vince Angotti

Yes, it's a good question. I'll let Pam comment a little bit on the details of the auditing program and then I'll comment on how I think it'll be beneficial moving forward.

Pam Palmer

Yes. So we have first REMS report six months after approval. So six months after November 2nd and then we have our full-year one due on November 2nd of this year and that's not only what we're sort of seeing in the field as far as auditing sites and obviously auditing or wholesalers and distributors. But it's also the Radar's program looking at signs of any abuse in the sort of outpatient setting or what have you.

So it's a very comprehensive REMS. We were glad to work with the FDA. We feel very happy about what we're evaluating and looking at and very confident about getting that data to the FDA. And there's been a lot of discussion lately about "REMS not working". And I think it's really important to show that AcelRx is very serious about the REMS program going to be timing report and if we see any signal at all in any hospital we will immediately stop shipments to the hospital, it's very easy to do that and we're going to be the good players in this sort of pharmaceutical sales situation.

Vince Angotti

Yes. I think look from an anecdotal perspective just general commentary, a lot of people here at REMS they think restrictions. That's not what we think. We think important component of responsible pharmaceutical companies' behavior and we embrace it. And as Pam mentioned, you've even seen some journal articles lately one in particular from JAMA about certain REMS associate with opioids in the outpatient setting that haven't done the job, they're supposed to do.

We're hopeful that we can be the example moving forward of how to do it correctly, how to do it compliantly, and how to make it matter. So for us we embrace it. It's something we invest in and take very seriously and we'll take pride in moving forward to show that it can be done right and that these products can help patients but in the right setting for the right patient.

Ed Arce

That's helpful. Thank you very much.

Vince Angotti

You're welcome, Ed. Thanks for the question.


And with that, that will conclude today's question-and-answer session. I'd like to turn the conference call back over to management for any closing remarks.

Vince Angotti

Thank you, operator and thank you all for joining us today and for your continued support of AcelRx. I want to emphasize look it's very early in the launch. Execution is our priority. We've only been in the field for one month. We've only been available in wholesalers for two weeks. DSUVIA remains the single largest driver of value for AcelRx. We're going to continue our disciplined approach to commercialization moving forward and we look forward to keeping you updated on our progress throughout the year. Thanks for your attention and interest in AcelRx and have a good evening.


Ladies and gentlemen that will conclude today's conference call. And we thank you for attending. You may now disconnect your lines.